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Working Paper

Macroprudential supervision: from theory to policy

While there is now consensus that financial supervision has to focus on the aggregate (macroprudential), in addition to the individual (microprudential), there is no agreed macroprudential framework for measuring financial imbalances and applying policies to correct such imbalances. This paper focuses on these two open questions in the so-called time dimension of macroprudential policy.

By: and Date: November 25, 2015 Topic: Finance & Financial Regulation

Highlights

Financial supervision focuses on the aggregate (macroprudential) in addition to the individual (microprudential). But an agreed framework for measuring and addressing financial imbalances is lacking. We propose a holistic approach for the financial system as a whole, beyond banking.

Building on our model of financial amplification, the financial cycle is the key variable for measuring financial imbalances. The cycle can be curbed by leverage restrictions that might vary across countries and sectors.

Macroprudential supervision has been discussed since the onset of the great financial crisis, but policymakers are still slow on the ground. While the current monetary policy stance of quantitative easing may be needed to stimulate subdued growth, the risk of financial booms is increasing. We make concrete policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent.

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Policy Contribution

Cryptocurrencies and monetary policy

Can cryptocurrencies acquire the role of money? And what are the implications for central banks and monetary policy? Read the policy contribution to understand what challenges cryptocurrencies have to overcome to replace official currencies.

By: Grégory Claeys, Maria Demertzis and Konstantinos Efstathiou Topic: Finance & Financial Regulation Date: June 28, 2018
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Past Event

Past Event

News from the South. Proposal to strengthen the European Monetary Union: Combining fiscal discipline with risk sharing

On 4 June Bruegel, as in previous years, will host the presentation of the Euro Yearbook, a collection of experts’ insights on the construction of the European Monetary Union through 2017.

Speakers: Cristina Cabrera, Maria Demertzis, Fernando Fernandez, Massimo Giuliodori, Javier Méndez Llera and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 4, 2018
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External Publication

The changing fortunes of central banking

What are the major challenges of central banks today? This book discusses the developing role of central banks and the policies they pursue in seeking monetary and financial stabilisation, while also giving suggestions for model strategies.

By: Philipp Hartmann, Haizhou Huang and Dirk Schoenmaker Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: May 29, 2018
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By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: March 1, 2018
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External Publication

European Parliament

Note on the interactions between payment systems and monetary policy

This paper analyses the interactions between, on one hand, monetary policy and financial stability responsibilities of the ECB and, on the other hand, Post-Trading-Financial Market Infrastructures. In the author's opinion, payment Systems are critical for monetary policy while Central Counter Parties (CCPs) are critical for financial stability. However, in stressed conditions CCPs can be the source of risks also for monetary policy.

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By: Francesco Papadia Topic: European Macroeconomics & Governance Date: February 16, 2018
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Working Paper

Will macroprudential policy counteract monetary policy’s effects on financial stability?

How does monetary policy impact upon macroprudential regulation? What are the effects on financial stability? This working paper models monetary policy’s transmission to bank risk taking, and its interaction with a regulator’s optimization problem.

By: Itai Agur and Maria Demertzis Topic: Finance & Financial Regulation Date: January 24, 2018
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Blog Post

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Opinion

Opportunities and risks in Europe in 2018

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By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: December 30, 2017
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